Dollar rally pauses for breath after global stocks rebound

SINGAPORE  – The dollar slipped on Friday as risk appetite returned to global stock markets and investors appeared to shift their focus away from U.S. interest rate considerations, even as red-hot inflation data suggested more policy tightening was likely.

Traders also remained on edge about prospect of intervention in the yen, which was hovering above three-decade lows.

The dollar index fell 0.275 percent , extending the overnight session’s 0.5 percent decline as investors seemingly brushed off data that showed U.S. consumer prices increased more than expected in September.

The dollar has been on a tear as soaring inflation, recession fears and worries over central bank policies across the globe hit risk appetite.

But on Friday, Asian shares tailed Wall Street in moving higher.

Short-sellers in the stock market seemed to be driving the bounce in equities, which in turn pushed the dollar lower, said Bank of Singapore currency strategist Moh Siong Sim.

“I think the FX market is taking its cue from the equity market,” he said.

Despite this, the investment mood remained broadly cautious, which is likely to continue to support the dollar.

“I doubt the weaker dollar will sustain … the dollar is the safe-haven currency currently,” Commonwealth Bank of Australia strategist Carol Kong said.

Analysts also pointed to Thursday reports of a possible U-turn by the UK government on its fiscal plans, which also supported risk sentiment.

Sterling made steep gains overnight against the dollar as a result. It was last trading at $1.1311, down 0.15 percent on the day.

British finance minister Kwasi Kwarteng cut short his trip to Washington amid reports that Prime Minister Liz Truss was considering reversing elements of the plan announced three weeks ago that triggered turmoil in financial markets.

The Bank of England has had to step in to restore calm, announcing an emergency bond buying programme but is also adamant it will end the programme on Friday.

Focus now shifts to next month’s Federal Reserve policy meeting where it is expected to deliver another 75-basis-point rate increase. Futures prices also reflect about a one-in-10 chance of a full percentage-point rate hike next month.

Elsewhere, the dollar was trading at 147.33 to the yen, below the 32-year peak of 147.665 it hit in the previous session.

Investors remained on watch for intervention from the Japanese government to prop up the fragile currency. Finance Minister Shunichi Suzuki reiterated the government’s readiness to take “appropriate action” against excessive currency volatility.

“Given the overnight CPI (consumer price index) shock and the fact that some economists are increasing their expectations for Fed hikes, the yen’s relative stability is especially impressive,” John Vail, chief global strategist at Nikko Asset Management in Tokyo. “MOF’s efforts, therefore, have been successful.”

Last month, Japan intervened to buy yen for the first time since 1998, in an attempt to shore up the battered currency.

“There is still a risk of BOJ intervention just on the back of on how weak the yen is,” Kong said, but cautioned that any intervention is unlikely to be successful.

The Australian dollar was up 0.56 percent versus the greenback at $0.633, coming off a two and half year low it touched in the previous session. The kiwi was up 0.71 percent at $0.567 and was set for its first weekly gains in nine weeks.

The euro nudged up 0.06 percent to $0.9779